Background Hospitals are highly resource-dependent settings, which spend a large proportion of healthcare financial resources. The analysis of hospital efficiency can provide insight into how scarce resources are used to create health values. This study examines the Technical Efficiency (TE) of 12 teaching hospitals affiliated with Tehran University of Medical Sciences (TUMS) between 1999 and 2011.

Methods The Stochastic Frontier Analysis (SFA) method was applied to estimate the efficiency of TUMS hospitals. A best function, referred to as output and input parameters, was calculated for the hospitals. Number of medical doctors, nurses, and other personnel, active beds, and outpatient admissions were considered as the input variables and number of inpatient admissions as an output variable.

Results The mean level of TE was 59% (ranging from 22 to 81%). During the study period the efficiency increased from 61 to 71%. Outpatient admission, other personnel and medical doctors significantly and positively affected the production (P< 0.05). Concerning the Constant Return to Scale (CRS), an optimal production scale was found, implying that the productions of the hospitals were approximately constant.

Conclusion Findings of this study show a remarkable waste of resources in the TUMS hospital during the decade considered. This warrants policy-makers and top management in TUMS to consider steps to improve the financial management of the university hospitals.